Seeking advice on an investment that cannot be liquidated.

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Uncle Freddie
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Seeking advice on an investment that cannot be liquidated.

Post by Uncle Freddie »

BogleHeads,

Could I have your advice, please, on an investment that I cannot liquidate; I cannot sell it because the company will not allow me to. This post is long, but I have made the synopsis as clear and quick of a read as possible.


Part 1

In 2014, my former financial advisor misrepresented an investment to me, which I proceeded to buy for $30,000.

The investment is an "alternative investment" in the form of a REIT. My understanding now is that it is specifically a "Publicly Registered, Non-Traded, Real Estate Investment Trust."

In 2014, I did not understand what it was. Today, I know to never, ever invest in something I do not understand. I was still new to investing in 2014; my mistake was listening to my former financial advisor and believing it to be a good investment, based on his recommendation.


Investment specifics:

Name: Healthcare Trust, Inc., aka HTI
http://www.computershare.com/HTI
http://healthcaretrustinc.com/

Current price: $15.75 per share
Current value: $23,135. My original investment in 2014 was $30,000.

FWIW, it has changed names several times since 2014:

AR Global (http://http://www.ar-global.com)
American Realty Capital (or AR Capital) (http://www.americanrealtycap.com)
American Realty Capital Healthcare Trust II, Inc. (http://www.thhealthcarereit2.com)




Part 2

Starting in 2016, two years into owning the investment, I began receiving letters from another company called MacKenzie Realty Capital, Inc. (http://www.mackenzierealtycapital.com)

From 2016 to 2018, I received 5 of these letters.

In each letter, MacKenzie offered to buy the investment from me. At my loss, of course. The letter starts off: "Good News! You can finally get your cash out of Healthcare Trust, Inc. and regain control of your money." and goes on from there.

My former advisor told me to ignore the MacKenzie offer letters.

HTI sent letters telling me to ignore the MacKenzie offer letters.




Part 3

The sordid story boils down to this: what are my options?



Option 1: should I at the very least file a FINRA complaint against my former advisor?

Why or why not?

For grins, I did a FINRA search (https://brokercheck.finra.org) on him and there is one complaint from 2010:

Disclosure 1 of 1
Reporting Source: Broker
Employing firm when activities occurred which led to the complaint: [redacted for BogleHeads post; PM me for the name]
Allegations: CUSTOMER ALLEGES PRODUCT WAS UNSUITABLE FOR HER
Product Type: REAL ESTATE INVESTMENT TRUST
Alleged Damages: $30,000.00
Is this an oral complaint? No
Is this a written complaint? Yes
Is this an arbitration/CFTC reparation or civil litigation? No
Date Complaint Received: 08/11/2010
Complaint Pending? No
Status: Closed/No Action
Status Date: 08/24/2010
Settlement Amount: $0.00
Individual Contribution Amount:


FWIW: 2010 is before I began working with the advisor.
FWIW: the 2010 complaint was apparently closed with no action and no money returned.
FWIW: the 2010 complaint pertains to the exact same type of investment as mine, and the exact same amount as mine. Coincidence?

If I were to file a FINRA complaint, I may not get any of my money back, but 2 public complaints might keep future customers away from him and his grifting ways.




Option 2: should I do nothing? Just wait it out, and see what happens to my investment?

It is a gut punch every time I remember that it is unknowable if or when I can liquidate this investment. I may have been an idiot for buying the investment, but at least now I understand how much better this money could do in the stock market than sitting in the illiquid REIT. I think about what $30,000 could have done in VTSAX from 2014 to 2021...

HTI may offer to buy the shares back in the future, at my loss, of course. But who knows if or when.




Option 3: should I contact MacKenzie and sell the investment to them, at my loss?

Again, this money could do better in the stock market than sitting in the illiquid REIT. I have yet to research their current offering price and how much more I would end up losing if I go this route. The MacKenzie offer stands until 1/31/2025.

And by the way: if this illiquid REIT investment is as bad as it seems, then why are companies like MacKenzie out there trying to buy it all up? What am I missing?




Option 4, should I file a lawsuit against my former financial advisor?

Am I correct that advisors have an insurance called Errors and Omissions insurance to cover misrepresentations like this?

To be clear: my former financial advisor flat out misrepresented this investment to me. This is just one of several UN-fiduciary things he has done, but so far, I have been able to get out of the other bad investments by forklifting my money to Vanguard.




Option 5, should I file a lawsuit against HTI?

A Google search turns up all kinds of actions being taken against this company, with waiting attorneys just a phone call away:

https://www.google.com/search?q=Healthc ... nc+lawsuit

https://www.whitesecuritieslaw.com/2020 ... set-value/

https://www.classlawgroup.com/securitie ... t-lawsuit/

https://www.investorlawyers.net/blog/he ... demptions/




Thanks BogleHeads for reading this far; I look forward to your insightful comments.

Best regards,
Fred
LeftCoastIV
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Re: Seeking advice on an investment that cannot be liquidated.

Post by LeftCoastIV »

Sorry to hear about your situation. My primary advice would be to not throw any more money at this (e.g. don't pay an attorney to go after the REIT, or an attorney to go after the financial advisor).

Personally, I would call up the company that wants to buy your shares and at least hear them out. The only money exchange that should happen though is them paying you for your shares. If they want any money to come from *you*, I would run away.

It looks like the company is at least paying dividends. I assume you are a common stock holder (not a Series A Preferred Stock holder). Have you received any dividend $ yet?
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birdog
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Re: Seeking advice on an investment that cannot be liquidated.

Post by birdog »

I share your frustration as I am in the same boat. I fired my financial advisor in 2017 and pulled out all liquid investments but still have two accounts with him that contain three non-traded REITs that are doing poorly. I bought these after the FA recommended them in 2014. These REITs are pushed by some FAs because they make 10-15 percent commission off of your buy-in. It says so somewhere in the long contract that you signed. I would ignore the MacKenzie offers as they’re trying to give you 50% of what you have invested so that they can make a large profit off of your impatience. My guess is you’ll end up disappointed if you initiate any legal proceedings but to each his/her own. Most REITs have redemption programs where you can cash out some or all of your shares at the most recent NAV price. Some offer annual or even quarterly redemption events. Some REITs have recently suspended those programs in light of COVID-19. I would advise you to learn the redemption program that this particular REIT may offer and act to take full advantage of it. I think patience will be needed here and that you may need to just chalk this up as a lesson learned where a FA was looking out for his/her interests over yours. Be thankful you put just 30k in one. I put many multiples of that in three REITs and four years after becoming a Boglehead I’m still trying to unwind these poor investing decisions that my FA recommended but that I ultimately decided to buy into of my own free will. Best of luck to you.
Last edited by birdog on Fri Feb 12, 2021 6:40 am, edited 1 time in total.
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galawdawg
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Re: Seeking advice on an investment that cannot be liquidated.

Post by galawdawg »

Almost any remedy worth pursuing will likely cost you more money than you have already invested. However, it wouldn't hurt to contact the company that solicited your shares in 2016 and hear them out (if they are even still interested, they likely are not). It also wouldn't hurt to contact the attorneys that are advertising for HTI investors, but be aware that even if they are taking such cases on contingency, any recovery will be diluted first by the legal expenses and then by their fee. As a result, you would probably be fortunate if you recovered $1,000 on your initial investment. Just don't send anyone any money...good money after bad and all...

Unfortunately, this may be a situation where you this will be a $30k lesson in the school of how not to invest your money. On the bright side, if you are now following the Bogleheads investing philosophy, by the time you retire this loss should be a drop in the bucket! :happy

Good luck!
dknightd
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Re: Seeking advice on an investment that cannot be liquidated.

Post by dknightd »

Have you added up your dividends over the years to see if they account for the drop in price?

You might want to contact your previous Advisor and see if they are interested in buying your shares back (even at a reduced price to allow for dividends paid). If not, I'd file a complaint (as long as you can do this without hiring a lawyer).

I echo above advice about not hiring a lawyer. It is unlikely to be worth the money or aggravation.

In your shoes I see two real options. Take what you can get now, or hold out expecting to loose it all.
I'd talk with both the company who's shares you own, and the company who offered to buy them.

I think as long as they were still paying dividends I'd hold on and hope for the best. Lesson learned.

It could still work out well. Their properties values (and hence share value) might go back up, and they might continue to pay dividends while you wait. Or they could go bankrupt and you and all other investors loose everything. That is the risk . . .
If you value a bird in the hand, pay off the loan. If you are willing to risk getting two birds from the market, invest the funds. Retired 9/19. Mortgage payed off 5/21.
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birdog
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Re: Seeking advice on an investment that cannot be liquidated.

Post by birdog »

Also, if your are currently being paid dividends from this REIT make sure that you are not re-investing those dividends back into more shares of the REIT through their DRIP program. If you are, turn off the DRIP ASAP.

Have you looked into the redemption program that this REIT may offer? I've been able to redeem a significant chunk of my shares directly from the REIT at the most recent NAV price through their redemption program. In one of my REITs they have temporarily suspended both the monthly dividend as well as the share redemption program. In another REIT, they offer quarterly redemptions that you must re-submit a redemption request for every quarter. I've been getting partial redemptions every quarter for the past three years as the total redemption requests always exceed the amount of allowable shares by the REIT to be redeemed per quarter. My FA charges 1% AUM fee on non-REIT assets, including cash. So the last week of every quarter I transfer the accumulated cash from the monthly REIT dividends to my account at TDA. I go to TDA and pull the cash. This saves me giving any more dollars to my FA.

You will find that the MacKenzie offers are usually at a 50% discount to current NAV. It's a major rip-off. I've owned 9 of these REITs dating back to 2012. The first few worked out beautifully, the last few not so much. But I seem to recall getting solicitations from MacKenzie for every one. They are vultures that will prey on someone's impatience in order to get a REIT that they want for a steep discount at your expense.
Last edited by birdog on Fri Feb 12, 2021 8:40 am, edited 1 time in total.
PaunchyPirate
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Re: Seeking advice on an investment that cannot be liquidated.

Post by PaunchyPirate »

My story... I too was sold 3 of these REIT type investments by my then financial advisor. After a few years, I realized they were troublesome investments because of their illiquidity. Long after I had broke the tie to the financial advisor I had to deal with them. Since they were illiquid and not holdable by the major brokerages, I could not even transfer them to a decent brokerage, so I had to keep my accounts open at that financial advisor's company. I sold off or transferred all other holdings and just left the REITs and largely ignored them. My total investment was also probably about $30,000.

Eventually, One of the REITs was purchased for cash and my shares became cash. I was able to get the proceeds and close that account. A few years later, a second one was purchased by a publicly traded company. My shares became a combination of cash + shares in the publicly traded company. Bingo. I transferred that account as soon as I owned the shares in the new company. Then I sold the shares and invested elsewhere.

I have no idea if I lost or made money off these investments after all the dividends were paid. I suspect I made some money in the long run.

The third investment... I'm still stuck with after 16 or 17 years. It is a Low Income Tax Housing Credit fund (they invest in government subsidized low income properties). Generally at about the 15-18 year point, these funds are liquidated since the government tax credit associated with them has a 15 year life span. So they start selling off the individual properties. Just in December, the entire fund was sold to another company. I honestly don't know what that means. I was hoping to see it liquidated soon, but I'm not sure if that will happen or not. I don't think they are required to liquidate it, but I think their incentives to own/operate are not as attractive. This was an $18,000 investment originally. It is a pain in the #@*# investment because it generates a Limited Partnership K-1 statement at tax time that complicates and delays my ability to file my taxes. They never get the K-1 to me until late March or even Early April. I've written off that $18,000 years ago. There are apparently a few companies that will buy the investment for pennies on the dollar, but I haven't taken the time or energy to go that route yet. I'll just live with it until it resolves itself. I still have one account left at Ameriprise (Oops!) holding this investment that they charge me $25 each quarter to maintain. I actually just deposited another $100 into the account to pay for one year of the account fees. Annoying, to say the least.

As for legal action against the advisor... I don't advise wasting more of your time. I'm sure that I signed documents indicating I understood what I was doing when buying the investment. I know my advisor even told me it was a multi-year, long-term investment. That sounds fine when you're starting out and don't understand the implication.
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bertilak
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Re: Seeking advice on an investment that cannot be liquidated.

Post by bertilak »

I believe you are unlikely to get any relief from legal actions, unless there is a class-action suit you can join. Even that may not be a good idea. (Read on.)

You should have a prospectus that came with your investment. Read it VERY carefully to be sure you understand your options.

Google it to see if there is any useful advice out there.

I inherited a similar REIT and learned that it was really not all that bad a deal. By contract, it paid 7%. This amount was contracted to go up a specified amount every N years. The next update was imminent and would make it 11%. The company was allowed (but not required) to buy back a certain amount of the investment every so often. They had done some of this in the past when it went up to 7%. I therefore no longer had as many shares as I used to. I suspected there would be a big buy-back before the 11% hit and I was right. They bought everything I had. I now own none of it but was happy to get that 7% while I was getting it. I'd have gladly taken 11% if it came to that. The buy-back was tax free because they paid cost basis.

I also ignored third-party offers to buy it, even before I understood it. I figured if they wanted it, it was probably worth more than their offer! Turned out I was right.

Also, there WAS a class-action lawsuit by people who believed (rightly so, I think) that they were sold an inappropriate investment because it locked them in and they were not properly advised of this. The lawsuit was settled with some people getting money back.

EDIT: Fixed lawsuit link above.
Last edited by bertilak on Fri Feb 12, 2021 12:29 pm, edited 1 time in total.
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just1question
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Re: Seeking advice on an investment that cannot be liquidated.

Post by just1question »

Many, although not too many, years ago I had a financial advisor who put me in the same position, albeit with less money involved. Although I lost money on the non-publicly traded REIT, that investment was in one way the best I ever made. It woke me up. I started researching, reading everything I could get my hands on, until I found my way to Vanguard and this forum. I fired the advisor and took over control of my own finances. I don't know how much I lost on that non-publicly traded REIT, but whatever it was, I more than made up for that amount by eliminating advisor and high expense ratio fees. (Plus, it felt good firing the advisor, but that is just me being petty.)

As to your questions:

A finra complaint may make you feel better about the situation, and the disclosure will certainly be a black mark on his record, even if he is found not to be at fault. (I don't know if there would be any repercussions on you if you lost; something you should look into before filing.) But I suspect the chances of you succeeding are slim to none, and slim just walked out of the room. Advisors have their clients sign off on all types of disclaimers and the like, which the advisor will present as exhibit A. You may be able to win if you can show that the advisor put an unreasonable percent of your overall net worth in a non-tradeable asset. For your sake, I hope $30k is not an unreasonable percent of your net worth. Personally, I decided to move on and not pursue legal action. The potential monetary reward just wasn't worth the aggravation. As for bringing a lawsuit, I'd check your agreement with the advisor first. Chances are there is an arbitration clause.

I don't know enough about your REIT to advise you how to proceed. Even if I knew more about the REIT, I just don't know enough period to advise you how to proceed. The only thing I can tell you is that I received those same letters, with my advisor telling me to ignore them. In retrospect, I wish I would have just taken the buyout early in the process. Even if the offer was only 50 cents on the dollar, I could have reinvested the buyout proceeds in the market instead of waiting for the wind down of the REIT. Plus, I find that sometimes it's just better to rip the band-aid off and move forward. But that's just me.

Best of luck.
7eight9
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Re: Seeking advice on an investment that cannot be liquidated.

Post by 7eight9 »

Did you receive a prospectus?

We are an “emerging growth company” under the federal securities laws and will be subject to reduced public company reporting requirements. Investing in our common stock involves a high degree of risk. You should purchase these securities only if you can afford a complete loss of your investment.
https://www.sec.gov/Archives/edgar/data ... _424b3.htm
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alex_686
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Re: Seeking advice on an investment that cannot be liquidated.

Post by alex_686 »

I would just sit on the investment.

I would not file the FINRA. Non-traded REITs are a valid product. It is a tricky area for suitable so compliance should have done a second check. You are going to face a uphill battle.

Let me ask a question, would you consider filing a complaint if you were up 10k in a illiquid asset?
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nisiprius
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Re: Seeking advice on an investment that cannot be liquidated.

Post by nisiprius »

Here is how a acquaintance of mine managed to liquidate a non-traded REIT. I'm not recommending you try it. My only contribution here is to say that there may be an avenue for liquidating it. Whether or not that would be a good idea financially, I don't know.

There are companies that specialize in buying non-traded REITs. I don't know if your REIT is one they are interested in. I don't know if MacKenzie is just one of these firms or if this is some kind of "tender offer" or what have you. My acquaintance said his advisor said vaguely that he "knew of" such firms, but disparaged them as "bottom feeders." When asked to pursue a sale anyway, the advisor slow-walked and stalled.

Eventually, my acquaintance contacted the REIT corporation itself, via their "shareholder contact" link.

The REIT responded with a letter listing five or six firms that buy non-traded REITs with a disclaimer that it was information only and that they didn't recommend any of the firms. My acquaintance contacted two of them that made roughly similar estimates on what they thought they could sell the REIT for. They were suspiciously friendly, agreeable, and helpful and suggested that my acquaintance allow them to take care of everything. He chose one and did so. They did what they said they would do, and met the expectation they had set for the amount of money. In the end, he had money and he didn't have the REIT, and was satisfied with the outcome.

I assume these companies aren't paying what the REITs are "worth," and are probably exploiting people, e.g. people who've inherited these things and just want cash quick and have no idea of their value. Very likely the advisor would tell you that you would be financially better off to hang on to it.

I see that your REIT has a "Contact Us" link. You could try asking if they know of firms that will buy your REIT. I'd be curious to know their answer. MacKenzie might just be one option of several.

In your situation my actual goal would be to focus on dollars, not on teaching the broker a lesson. These products have been sold so widely for so long that the powers that be must think they are legit if honestly represented, and it is awfully hard to show that your broker didn't represent it honestly to you.
And by the way: if this illiquid REIT investment is as bad as it seems, then why are companies like MacKenzie out there trying to buy it all up? What am I missing?
Possibly that they are low-balling the amount they are willing to pay? This probably isn't a worthless investment, it's just that it's worth who-knows-what and who-knows-when.
Last edited by nisiprius on Fri Feb 12, 2021 1:18 pm, edited 6 times in total.
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nisiprius
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Re: Seeking advice on an investment that cannot be liquidated.

Post by nisiprius »

Too late, of course, but here is a FINRA "alert" (euphemism for "warning")

Non-traded REITS--perform a careful review before investing

and a

Public Non-Traded REIT Tip Sheet.
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alex_686
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Re: Seeking advice on an investment that cannot be liquidated.

Post by alex_686 »

nisiprius wrote: Fri Feb 12, 2021 12:54 pm
And by the way: if this illiquid REIT investment is as bad as it seems, then why are companies like MacKenzie out there trying to buy it all up? What am I missing?
Possibly that they are low-balling the amount they are willing to pay? This probably isn't a worthless investment, it's just that it's worth who-knows-what and who-knows-when.
I will second that. There are pros and cons of non-traded REITs. The big con is that they are illiquid. The people who are buying these REITs are the same people who put up “we buy houses for cash”. They are willing to buy illiquid and complex assets quickly for cash. They make their money buy buying these risky assets at a steep discount.
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hand
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Re: Seeking advice on an investment that cannot be liquidated.

Post by hand »

Uncle Freddie wrote: Fri Feb 12, 2021 3:33 am In each letter, MacKenzie offered to buy the investment from me. At my loss, of course. The letter starts off: "Good News! You can finally get your cash out of Healthcare Trust, Inc. and regain control of your money." and goes on from there.
This is a sunk cost - you make a mistake by focusing on whether you are able to sell at a loss or profit to the initial $30k investment. The only thing that matters now is 1) current value of the investments, 2) value if liquidated immediately vs held to maturity and 3) time to maturity and 4) relationship between current value and liquidated value.

If can only sell at a dramatic discount to true value, it may be worth holding.
If you're desperate for cash, it may be worth liquidating at a significant discount.

Separately you may consider action against your advisor, but you're unlikely to see financial return.
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Re: Seeking advice on an investment that cannot be liquidated.

Post by Elric »

alex_686 wrote: Fri Feb 12, 2021 1:30 pm I will second that. There are pros and cons of non-traded REITs. The big con is that they are illiquid. The people who are buying these REITs are the same people who put up “we buy houses for cash”. They are willing to buy illiquid and complex assets quickly for cash. They make their money buy buying these risky assets at a steep discount.
Exactly! We own some illiquid alts, also from when we had an advisor (but we were fully aware of what we were buying). A couple are doing fine, a couple did or are doing not so well. Total amount was such that we could afford to lock it up. One recently went public. Just before that, we received a similar 3rd party offer of far less than 50% of net asset value, warning that who knows how low the price could go when it went public. True statement. In fact, the public offering went poorly, with a price significantly lower than NAV, around 80% or so (working strictly from memory here). So you can see, the buyout company almost immediately turned a large profit on any shares sold to them, as 80% is more than 50%.

We held our shares for a bit after it went public, the price rose a bit, and we sold. Price has continued to move upwards since. Happy to be out of it, but I would be really upset had Ia sold for such a huge and unecessary loss. They profit off those who never should have invested in an illiquid investment and now need whatever cash they can get.

As others have said, DO Look for periodic share repurchase offers from the issuer. If they offer this, it likely will be oversubscribed, and they'll only buy back some of your shares each time, but it will be forward progress.
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Re: Seeking advice on an investment that cannot be liquidated.

Post by aristotelian »

Has advisor served you well otherwise? Do they have any explanation for when you might see return? Could they sell this to someone else or otherwise help you recoup your investment?

How much is this MacKenzie offering? I would be inclined to take anything above five digits. Less than that, might as well ride it out and see what happens.

For 30k I would not go filing any lawsuits. I would do FINRA if you really believe there is wrongdoing but if you were given disclosures and took the risk I don't see much of a case. Advisor can't be blamed for an investment going south.
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Re: Seeking advice on an investment that cannot be liquidated.

Post by Manley »

Uncle Freddie wrote: Fri Feb 12, 2021 3:33 am BogleHeads,

Could I have your advice, please, on an investment that I cannot liquidate; I cannot sell it because the company will not allow me to. This post is long, but I have made the synopsis as clear and quick of a read as possible.
Hello Uncle Fred,
I finally found someone who is in the same boat with my parents and I. We made exactly the same REIT investment in 2014 with previously RAC Inc now HTI Inc with our Financial Advisor. I actually just called her up to seek for any suggestions again. Her reply to us was to be patient due to the pandemic, once all are vaccinated, the hospitals will be able to pay rents...balah blah... I told her I will call her up in September for the follow up...

After the call, I finally started to NOT Trust her anymore...and googled to your forum post! It's April 2021 now, did you make any decisions or any move yet? We did receive same offer letters like MacKenzie over the years, but I just threw them away by trusting my FA so much...Do you still have the contact info of MaKenzie Company? :happy

Any updates would help! :oops:

Thank you much!!
Manley
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Uncle Freddie
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Re: Seeking advice on an investment that cannot be liquidated.

Post by Uncle Freddie »

Thank you BogleHeads for your good advice. I really appreciate it. I drafted this thank you+status report 2 months ago. Then I got too busy to finish it. Here it is, better late than never.


I am relieved to hear from others in the same boat. It eases my mind to know that I am not alone.

I am also relieved to learn that perhaps this investment is not completely awful. Illiquidity is a drawback, but it seems from your comments that illiquid investments are not automatically bad investments.

The REIT is made of medical-related buildings and senior housing, and I vaguely recall the former advisor's persuasion tactic: an aging Baby Boomer population + medical real estate = profit. I may never forgive myself for being so gullible.



Anyway, going forward:

1. I am going to take everyone's advice and not involve an attorney.


2. I am not going to contact FINRA.


3. I have not yet complained to my credit union, but if I were to complain, it would be that my former advisor sold me product after terrible product, all while claiming to be a fiduciary. How I got with my financial advisor in the first place was through my credit union; he has some kind of independent contractor relationship with them. There goes the belief that credit union's are not out to screw you.


4. I have no plans to sell to MacKenzie. However, I should probably force the effort to contact them, just to hear what they have to say.


5. Regarding dividends: yes, the REIT pays dividends.

It paid more in the beginning, like $150 to $200 every month. Dividend reinvestment was enabled from 2014-2017. In 2017 I began to be suspicious of my advisor and disabled dividend reinvestment. In hindsight, I should have fired him then; it would be another 3 years before I did.

So from 2014-2017, dividends were reinvested; from 2017-2019, dividends were paid in cash. Currently dividends are again being reinvested, because at some point HTI switched the dividend reinvestment settings back on. It was not me. I have a form in hand to mail to re-disable dividend reinvestment. I need to dig through the statements to see exactly when and why dividend reinvestment got switched back on.




Best regards,
Fred
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Re: Seeking advice on an investment that cannot be liquidated.

Post by Uncle Freddie »

Manley wrote: Wed Apr 14, 2021 11:29 pm
Uncle Freddie wrote: Fri Feb 12, 2021 3:33 am BogleHeads,

Could I have your advice, please, on an investment that I cannot liquidate; I cannot sell it because the company will not allow me to. This post is long, but I have made the synopsis as clear and quick of a read as possible.
Hello Uncle Fred,
I finally found someone who is in the same boat with my parents and I. We made exactly the same REIT investment in 2014 with previously RAC Inc now HTI Inc with our Financial Advisor. I actually just called her up to seek for any suggestions again. Her reply to us was to be patient due to the pandemic, once all are vaccinated, the hospitals will be able to pay rents...balah blah... I told her I will call her up in September for the follow up...

After the call, I finally started to NOT Trust her anymore...and googled to your forum post! It's April 2021 now, did you make any decisions or any move yet? We did receive same offer letters like MacKenzie over the years, but I just threw them away by trusting my FA so much...Do you still have the contact info of MaKenzie Company? :happy

Any updates would help! :oops:

Thank you much!!
Manley


Hi Manley,

Being a sucker to grifters makes you sick to your stomach, right? Check out the post right above this one for my update.

I have not contacted MacKenzie myself, but here is the contact URL as it appears on their letters:

http://www.mackenzierealtycapital.com
http://www.mackenziecapital.com/#contact

My last letter from them is from 2018. If you would like me to scan the actual letter and send you a PDF, send me a private message.


Best regards,
Fred
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Re: Seeking advice on an investment that cannot be liquidated.

Post by alex_686 »

Uncle Freddie wrote: Fri Apr 16, 2021 11:27 am 3. I have not yet complained to my credit union, but if I were to complain, it would be that my former advisor sold me product after terrible product, all while claiming to be a fiduciary. How I got with my financial advisor in the first place was through my credit union; he has some kind of independent contractor relationship with them. There goes the belief that credit union's are not out to screw you.
A couple of thoughts here, but to summarize I would let the people know at the credit union what you think of the advisor.

Being a fiduciary does not mean one is competent, excellent, or poor. It is more about how fees are charged and how conflicts of interest are handled. I know some brokers (i.e. non-fiduciaries) who are ethical and excellent at their jobs. I know of some fiduciaries who are very poor at their jobs.

The job of a advisor is to offer advice. i.e. opinions. Bogleheads have very strong opinions - passive investing. Don't confuse opinions with facts.

Don't confuse opinions with results. I have heard what I consider reckless advice that turned our spectacularly well. I have seen good solid conservative advice blow up.

It is very hard to select a advisor. There is few objective factors to work off of, most are subjective.

From your story I think the failure here is for the advisor to listen to what you needed and (critically) failed to convey to you the nature of investment. This is major issue. Not criminal, but it is a core skill in being a advisor.

Their may be a secondary failure for conflicts of interests, a common issue with private REITs. Because they are complex they often have a higher sales commission to compensate the advisor for their time.
Former brokerage operations & mutual fund accountant. I hate risk, which is why I study and embrace it.
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Re: Seeking advice on an investment that cannot be liquidated.

Post by illumination »

I think most people here made that one bad investment decision and it was a blessing in disguise.

FWIW, my wife a really long time ago was a client at Morgan Stanley, the advisor had put her in something he shouldn't have, it was something like short term commercial paper that had become frozen. Ultimately the issue was made moot as Morgan Stanley bailed out all their clients in this space but before that, the FA offered to buy out the position with his own money.

You may want to see if he's willing to do that (buy it back) as it might be worth it to him to not have a formal complaint and/or possible lawsuit.
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Re: Seeking advice on an investment that cannot be liquidated.

Post by ipdiddly »

I am sorry for anyone who got snookered into an investment like this. I frankly cannot understand why any individual would want to invest in something that is not liquid - i.e., you cannot easily unload it. No matter how well it might perform, even if it performed as promised, at some point you are going to want to sell it.
Do the FA's who promote these things explain how you get out of it?
This type of investment reminds me a bit of timeshares. They sounded great during the promotion. Then after a couple of years folks realized they were stuck with them.
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Re: Seeking advice on an investment that cannot be liquidated.

Post by bertilak »

ipdiddly wrote: Fri Apr 16, 2021 1:05 pm I am sorry for anyone who got snookered into an investment like this. I frankly cannot understand why any individual would want to invest in something that is not liquid - i.e., you cannot easily unload it. No matter how well it might perform, even if it performed as promised, at some point you are going to want to sell it.
Do the FA's who promote these things explain how you get out of it?
This type of investment reminds me a bit of timeshares. They sounded great during the promotion. Then after a couple of years folks realized they were stuck with them.
One reason is that the return can be high.

In my uncle's case the REIT he bought was a preferred stock (i.e. having a contracted dividend). That dividend increased considerably on a regular basis, up to the point where the issuer bought it back at cost basis. I think this was the situation:
  • The issuer needed a cash infusion which it raised by issuing stock with an attractive and contracted return.
  • Part of the attraction was that the contract called for an increasing return at stated intervals.
  • The issuer protected itself by allowing for limited buybacks (calls).
  • When the next contracted increase would raise the return to 11% the issuer called it all in (bought back all outstanding shares) at cost basis, meaning it was not taxed.
This was all new and confusing to me and the above is the gist of what I THOUGHT I understood, but is probably off in some aspects. I hope not very important aspects!

Other non-traded REITS may have quite different contracts but they must do something to make them attractive enough for people to buy. Of course the premium paid to the sales people helps make the sale. They probably earn it by being able to make it understandable and attractive to a layperson.
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Re: Seeking advice on an investment that cannot be liquidated.

Post by ipdiddly »

bertilak wrote: Fri Apr 16, 2021 1:31 pm
One reason is that the return can be high.

Of course the premium paid to the sales people helps make the sale. They probably earn it by being able to make it understandable and attractive to a layperson.
Undoubtedly, there may be rare occasions where it works out. However, I tend to be the ultimate cynic. My attitude is: "If you have such a great investment, why are you coming to me with it?" Let's face it. Unless you are Warren Buffett (or those like him), no one is going to come knocking on your door with a goose that lays golden eggs. Ask yourself: If they've gotten down to your level, does that mean everyone above you already passed on it? It's like the Groucho line: "I don't want to belong to any club that would accept me as a member."
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Re: Seeking advice on an investment that cannot be liquidated.

Post by TropikThunder »

Uncle Freddie wrote: Fri Apr 16, 2021 11:27 am So from 2014-2017, dividends were reinvested; from 2017-2019, dividends were paid in cash.
How much cash did you get out while not re-investing dividends (compared to the ~$7k decline in value)?
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Re: Seeking advice on an investment that cannot be liquidated.

Post by bertilak »

ipdiddly wrote: Fri Apr 16, 2021 4:28 pm
bertilak wrote: Fri Apr 16, 2021 1:31 pm
One reason is that the return can be high.

Of course the premium paid to the sales people helps make the sale. They probably earn it by being able to make it understandable and attractive to a layperson.
Undoubtedly, there may be rare occasions where it works out. However, I tend to be the ultimate cynic. My attitude is: "If you have such a great investment, why are you coming to me with it?" Let's face it. Unless you are Warren Buffett (or those like him), no one is going to come knocking on your door with a goose that lays golden eggs. Ask yourself: If they've gotten down to your level, does that mean everyone above you already passed on it? It's like the Groucho line: "I don't want to belong to any club that would accept me as a member."
  • Well, The David Lerner rep came to me (actually my uncle) because he got a healthy commission to do so and my uncle already had an account with DL so he was easy to find and DL knew he had money to invest. For all I know the DL rep was also invested.
  • DL and the REP were paid a healthy commission because the company (BRE Properties) needed an infusion of cash, presumably to buy up more properties.
  • My uncle bought in because he liked the contract terms and the return promised.
In the end everybody got what they wanted.
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Re: Seeking advice on an investment that cannot be liquidated.

Post by bltn »

Having skimmed most of the replies after reading the initial post, my instinct would be to take the best offer currently available and get out of this investment. The longer you re in it, the more you ll lose. If nothing else, in opportunity costs. Get the money you can from whoever will buy your stake and invest it in a stock index fund.
I learned a similar lesson from limited partnership share sold to me many years ago by a financial advisor. He did ok, I did not.
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Re: Seeking advice on an investment that cannot be liquidated.

Post by bertilak »

bltn wrote: Sat Apr 17, 2021 8:12 am The longer you re in it, the more you ll lose.
My experience was quite the opposite. I was happy to take the contracted 7% for several years, until they bought me out (at cost).

If they didn't by me out they were contracted to start to paying me 11%.

This is not to say all non-traded (aka un-priced) REITS or other preferred shares have equally attractive contracts.
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Re: Seeking advice on an investment that cannot be liquidated.

Post by illumination »

bertilak wrote: Sat Apr 17, 2021 8:55 am
bltn wrote: Sat Apr 17, 2021 8:12 am The longer you re in it, the more you ll lose.
My experience was quite the opposite. I was happy to take the contracted 7% for several years, until they bought me out (at cost).

If they didn't by me out they were contracted to start to paying me 11%.

This is not to say all non-traded (aka un-priced) REITS or other preferred shares have equally attractive contracts.

Much of this though is just like stock picking, you were lucky and got a "good one". It would be no different than a Financial Advisor that takes a 2% fee per year and put you in Apple stock. It worked out great for the client, but that doesn't mean this is a good strategy. What if he had put you in Exxon or General Electric?

You mentioned getting 7% per year, and then getting your initial investment back. I don't know what time frame this was, but just as a comparison, from Jan 2010 to present, VNQ (Vanguard Real Estate ETF) has returned just under 11% CAGR. Easy to sell whenever you want and better diversified.

https://www.portfoliovisualizer.com/bac ... ion1_1=100
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Re: Seeking advice on an investment that cannot be liquidated.

Post by bighatnohorse »

A few of the non-tradable alternative investment have gone public and others have liquidated (returning considerable profits to owners).
Your alternative did not.
Most of the alternatives have plodded along, returning capital in the form of dividends (which is why you don't want your dividends re-invested).

Your beef is that it is illiquid - and unless you can prove misrepresentation when you purchased it, then you're probably stuck with it.
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Re: Seeking advice on an investment that cannot be liquidated.

Post by bertilak »

illumination wrote: Sat Apr 17, 2021 9:16 am
bertilak wrote: Sat Apr 17, 2021 8:55 am
bltn wrote: Sat Apr 17, 2021 8:12 am The longer you re in it, the more you ll lose.
My experience was quite the opposite. I was happy to take the contracted 7% for several years, until they bought me out (at cost).

If they didn't by me out they were contracted to start to paying me 11%.

This is not to say all non-traded (aka un-priced) REITS or other preferred shares have equally attractive contracts.

Much of this though is just like stock picking, you were lucky and got a "good one". It would be no different than a Financial Advisor that takes a 2% fee per year and put you in Apple stock. It worked out great for the client, but that doesn't mean this is a good strategy. What if he had put you in Exxon or General Electric?

You mentioned getting 7% per year, and then getting your initial investment back. I don't know what time frame this was, but just as a comparison, from Jan 2010 to present, VNQ (Vanguard Real Estate ETF) has returned just under 11% CAGR. Easy to sell whenever you want and better diversified.

https://www.portfoliovisualizer.com/bac ... ion1_1=100
Three points:
  1. 7% was by contract. VNQ is not.
  2. About diversity: BRE Select owned (or now owns) over 100 properties in over a dozen states.
  3. I wasn't saying that every unpriced REIT was a "good one" but that it is unjustified to say that every one (like the OP's health care REIT) deserves, by nature, the warning "The longer you re in it, the more you ll lose." This is the rash judgement and blanket statement I was objecting to. The OP should NOT follow that advice blindly.
Last edited by bertilak on Sat Apr 17, 2021 9:51 am, edited 1 time in total.
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Re: Seeking advice on an investment that cannot be liquidated.

Post by Shallowpockets »

An illiquid investment is really no investment at all.
If you cannot track it, and sell it, what have you really got?
Nothing.
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Re: Seeking advice on an investment that cannot be liquidated.

Post by Elric »

Shallowpockets wrote: Sat Apr 17, 2021 9:50 am An illiquid investment is really no investment at all.
If you cannot track it, and sell it, what have you really got?
Nothing.
I must disagree. Otherwise, with several previous illiquid investments:
1) I paid real money for nothing.
2) This nothing then paid me real money in the form of dividends (in my case none from from capital) for years.
3) After a liquidity event, I was able to sell nothing, which had now miraculously transformed into something, for real money.
That's not really a good characterization.

Illiquid investments certainly lock up capital for long periods, they have additional risks, they may often be bad investments, but they are certainly not "nothing."
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Re: Seeking advice on an investment that cannot be liquidated.

Post by illumination »

bertilak wrote: Sat Apr 17, 2021 9:39 am
illumination wrote: Sat Apr 17, 2021 9:16 am
bertilak wrote: Sat Apr 17, 2021 8:55 am
bltn wrote: Sat Apr 17, 2021 8:12 am The longer you re in it, the more you ll lose.
My experience was quite the opposite. I was happy to take the contracted 7% for several years, until they bought me out (at cost).

If they didn't by me out they were contracted to start to paying me 11%.

This is not to say all non-traded (aka un-priced) REITS or other preferred shares have equally attractive contracts.

Much of this though is just like stock picking, you were lucky and got a "good one". It would be no different than a Financial Advisor that takes a 2% fee per year and put you in Apple stock. It worked out great for the client, but that doesn't mean this is a good strategy. What if he had put you in Exxon or General Electric?

You mentioned getting 7% per year, and then getting your initial investment back. I don't know what time frame this was, but just as a comparison, from Jan 2010 to present, VNQ (Vanguard Real Estate ETF) has returned just under 11% CAGR. Easy to sell whenever you want and better diversified.

https://www.portfoliovisualizer.com/bac ... ion1_1=100
Three points:
  1. 7% was by contract. VNQ is not.
  2. About diversity: BRE Select owned (or now owns) over 100 properties in over a dozen states.
  3. I wasn't saying that every unpriced REIT was a "good one" but that it is unjustified to say that every one (like the OP's health care REIT) deserves, by nature, the warning "The longer you re in it, the more you ll lose." This is the blanket statement I was objecting to.

I would argue that contract for guaranteed pay was worth very little. I know I dodged a bullet on a similar deal where I had Preferred shares in a major REIT with a guaranteed rate and they simply suspended the dividend. Luckily I had bailed before that had occurred in order to simplify my portfolio. But all REITs have "contracts" with their tenants in the form of leases and are then legally obligated to distribute 90% of that back to shareholders.

I don't think they are all "scams", I'm sure some come out ahead with some deals. But anyone saying they are looking to buy into one of these through an FA, I'd automatically say there are probably better options that will likely give you a better return, have more diversification, and have far greater liquidity.
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Re: Seeking advice on an investment that cannot be liquidated.

Post by bertilak »

illumination wrote: Sat Apr 17, 2021 1:48 pm I don't think they are all "scams", I'm sure some come out ahead with some deals. But anyone saying they are looking to buy into one of these through an FA, I'd automatically say there are probably better options that will likely give you a better return, have more diversification, and have far greater liquidity.
I agree that preferred stocks are not for everybody and that they surely get pushed onto people for whom they are not a good thing, mostly centered on the illiquidity.

My comments above were for someone who has found him or herself somehow already owning one and not sure what to do about it. "Get rid of it" is very likely NOT the right answer. Unsolicited offers to "take it off your hands" are generally very bad deals, most likely worse deals than stumbling into preferred stock in the first place. Just because you stumbled into something uncritically or unknowingly doesn't make it a bad deal even if it's not best for you personally.

Preferred stocks are a legitimate tool for companies needing to raise cash quickly when prevented to do so by restrictions on borrowing (is this common for REITs?). They can make it worth someone's investment to attract that cash.

Ways for a company to raise cash:
  1. Save it up from earnings.
  2. Issue bonds (borrow).
  3. Issue Common stock (ownership).
  4. Issue Preferred stock (ownership with advantages/disadvantages different from common stock). It is called "preferred" for a reason. In other words, just because you own preferred stock doesn't mean you made a mistake.
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Re: Seeking advice on an investment that cannot be liquidated.

Post by afan »

I have never considered these things, so I don't know the answer to this question:

To what extent, if any, do the dividends represent return of capital, rather than new money on top of the initial investment?

This thread is an excellent example of why no one should ever engage an adviser who sells anything other than advice. If someone sells you investments then they are a salesperson, not an adviser.

If your advice-only adviser recommends these highly illiquid REITS, whole life insurance, or products pushed by salespeople, then look carefully at the argument and make your own decisions. Your advice-only adviser is highly unlikely to recommend such things because almost the only people who do are those who make commissions on the sales.

Never buy something you don't understand.

That said, it is possible for an informed person to choose illiquid investments, as long as they have good reasons and understand the costs and risks. Direct ownership of real estate, for example. Yes, you can sell it but it will take time and be expensive to do so.
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Re: Seeking advice on an investment that cannot be liquidated.

Post by nedsaid »

A few things.

First, sale of non-Traded REITs is regulated and to buy them you must meet certain net worth and income criteria. There are limits to how much of one's net worth can be tied up in these. Second, there is a fair amount of compliance paperwork that has to be processed and disclosures made to the client. Third, people buy these for reliable income and potential price appreciation. Fourth, ignore the letters from firms who offer to get you out at a steep discount. Fifth, these investments are illiquid and by definition require patience.

One of the best things that a person can do is take responsibility for their financial decisions. It is easy to find someone else to blame for investments that don't work out. There is risk to any investment one makes and all investments don't work out. As an investor, you have a fiduciary duty to yourself. Do your own due diligence, check things out before investing your money. Keep in mind that even with due diligence, research, and even good advice, things can still go wrong.

My preference is for investments that provide liquidity. That way if you buy a bad investment, you can just place an order to sell and you are out. You do take additional risks when you tie your money up for several years. A big risk is that life circumstances can change and you might then need your money back.

It reminds me of a family member that said he "lost his shirt" in an investment in company stock. It turned out that his losses were minor, he held the stock for maybe three years, and he received dividends along the way. As I talked to him, I was unclear that he had lost anything at all and he admitted that longer term things would have probably worked out.

If people are disappointed with an investment, oh my gosh, the advisor deceived me and ripped me off and I lost my shirt. A more sober analysis of what really happened finds that the reaction was more emotional than factual and the losses weren't so bad if they were losses at all. As with the family member, people forget about the dividends along the way. Another thing can happen is that a value of an investment can rise and then fall, people will fix on the fall from the high point and forget that the investment might still be worth more than they paid for it.

That being said, there are people out there who sell investments that put their clients in inappropriate investments. There really are people like the now deceased Bernie Madoff. There are bad advisors and there are bad investments. There are outright scams out there. Mostly what happens is that people buy something from an Advisor and are disappointed when the investment doesn't perform per expectations. There is also the opposite situation where people think they are doing well and are pleased with investments that aren't performing as well as they think and where there were much better alternatives.

As with everything else, exercise caution and use your best judgment. Don't let yourself be talked into things that you don't want to do. As far as non-Traded REITs, I am not a never say never type of person. I have never invested in any of these myself but who knows what might happen in the future? My preference is for liquidity because life circumstances can change. As it was once said, in the long run we are all dead.
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Re: Seeking advice on an investment that cannot be liquidated.

Post by nedsaid »

Another thing that you learn is that people hear what they want to hear. Many years ago, a Tax client asked me to do a projection of of their taxes for the next year.

What I said was that if everything stayed the same from this year to the next that the client should get a tax refund for a thousand dollars. I tried to explain that changes in circumstance would affect my projections.

What the client heard was "Blah, blah, blah. A thousand dollars. Blah, blah, blah."

Turns out what happened was that the client took a second job and of course this affected their tax refund which was less than expected. I told the client, "You didn't tell me you were going to take a second job." It was all my fault and her husband told me this was a rip-off. So in the eyes of the client, I was an idiot.

So same thing can happen with an investment advisor. The advisor can explain until he or she is blue in the face about the illiquidity of the investment and the risks involved and all the client is interested in is the 6% yield on the investment.

What the client hears is "Blah, blah, blah. Six percent yield. Blah, blah, blah." If the investment disappoints, the advisor deceived him or her and the investment was a rip-off.

Not saying this is what happened here with the original poster. Just saying that this happens.
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Re: Seeking advice on an investment that cannot be liquidated.

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Re: Seeking advice on an investment that cannot be liquidated.

Post by afan »

nedsaid wrote: Sun Apr 18, 2021 1:25 pm Another thing that you learn is that people hear what they want to hear. Many years ago, a Tax client asked me to do a projection of of their taxes for the next year.

What I said was that if everything stayed the same from this year to the next that the client should get a tax refund for a thousand dollars. I tried to explain that changes in circumstance would affect my projections.

What the client heard was "Blah, blah, blah. A thousand dollars. Blah, blah, blah."

Turns out what happened was that the client took a second job and of course this affected their tax refund which was less than expected. I told the client, "You didn't tell me you were going to take a second job." It was all my fault and her husband told me this was a rip-off. So in the eyes of the client, I was an idiot.

So same thing can happen with an investment advisor. The advisor can explain until he or she is blue in the face about the illiquidity of the investment and the risks involved and all the client is interested in is the 6% yield on the investment.

What the client hears is "Blah, blah, blah. Six percent yield. Blah, blah, blah." If the investment disappoints, the advisor deceived him or her and the investment was a rip-off.

Not saying this is what happened here with the original poster. Just saying that this happens.
This sort of misunderstanding is another reason not to hire an investment adviser.
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Re: Seeking advice on an investment that cannot be liquidated.

Post by willthrill81 »

afan wrote: Sun Apr 18, 2021 2:09 pm
nedsaid wrote: Sun Apr 18, 2021 1:25 pm Another thing that you learn is that people hear what they want to hear. Many years ago, a Tax client asked me to do a projection of of their taxes for the next year.

What I said was that if everything stayed the same from this year to the next that the client should get a tax refund for a thousand dollars. I tried to explain that changes in circumstance would affect my projections.

What the client heard was "Blah, blah, blah. A thousand dollars. Blah, blah, blah."

Turns out what happened was that the client took a second job and of course this affected their tax refund which was less than expected. I told the client, "You didn't tell me you were going to take a second job." It was all my fault and her husband told me this was a rip-off. So in the eyes of the client, I was an idiot.

So same thing can happen with an investment advisor. The advisor can explain until he or she is blue in the face about the illiquidity of the investment and the risks involved and all the client is interested in is the 6% yield on the investment.

What the client hears is "Blah, blah, blah. Six percent yield. Blah, blah, blah." If the investment disappoints, the advisor deceived him or her and the investment was a rip-off.

Not saying this is what happened here with the original poster. Just saying that this happens.
This sort of misunderstanding is another reason not to hire an investment adviser a salesperson masquerading as someone who cares about you.
Fixed that for ya! :wink:
“Good and ill have not changed since yesteryear; nor are they one thing among Elves and Dwarves and another among Men.” J.R.R. Tolkien, The Lord of the Rings
alex_686
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Re: Seeking advice on an investment that cannot be liquidated.

Post by alex_686 »

bertilak wrote: Sat Apr 17, 2021 4:25 pm I agree that preferred stocks are not for everybody and that they surely get pushed onto people for whom they are not a good thing, mostly centered on the illiquidity.

My comments above were for someone who has found him or herself somehow already owning one and not sure what to do about it. "Get rid of it" is very likely NOT the right answer. Unsolicited offers to "take it off your hands" are generally very bad deals, most likely worse deals than stumbling into preferred stock in the first place. Just because you stumbled into something uncritically or unknowingly doesn't make it a bad deal even if it's not best for you personally.

Preferred stocks are a legitimate tool for companies needing to raise cash quickly when prevented to do so by restrictions on borrowing (is this common for REITs?). They can make it worth someone's investment to attract that cash.

Ways for a company to raise cash:
  1. Save it up from earnings.
  2. Issue bonds (borrow).
  3. Issue Common stock (ownership).
  4. Issue Preferred stock (ownership with advantages/disadvantages different from common stock). It is called "preferred" for a reason. In other words, just because you own preferred stock doesn't mean you made a mistake.
Some points.

Preferred stock for REITs is uncommon but not rare.

REITs can’t used retained earnings. REITs have to pay out almost all earnings as dividends, so no retained earnings.
Former brokerage operations & mutual fund accountant. I hate risk, which is why I study and embrace it.
ncbill
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Re: Seeking advice on an investment that cannot be liquidated.

Post by ncbill »

The reason non-traded REITs get sold is because of the high commissions paid to the broker.

And they front-load their distributions so you'll initially be happy with the dividends paid & hopefully won't notice the steady drop in share value as they go out & sell more shares (via high commissions to brokers) to remain solvent.

I got rid of the turkeys I was sold at slightly better prices than McKenzie (you'll still take one h*** of a haircut) via Central Trade & Transfer (CTT) https://www.cttauctions.com

I will absolutely be filing a FINRA claim against my broker...though since they've abandoned their broker's license who knows what will happen.
alex_686
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Re: Seeking advice on an investment that cannot be liquidated.

Post by alex_686 »

ncbill wrote: Mon Apr 19, 2021 11:49 am The reason non-traded REITs get sold is because of the high commissions paid to the broker.

...

I will absolutely be filing a FINRA claim against my broker...though since they've abandoned their broker's license who knows what will happen.
So, I would ask the inverse question.

What would your action be If your advisor had suggested that you buy BitCoin and you had declined?

Private REITs are a legitimate investment, it serves a purpose, and is in valid for some portfolios. I used to do independent analysis work on these products. Mind you, I am not calling them great products. In my opinion, they are second rate. But let us differ facts from opinions. The fact is it is a legal investment.

On the other side, in my very strong opinion, BitCoin lays somewhere between a purely speculative investment to a irrational manic asset bubble. I know that it is technically defined as a investment, but that is mainly because enough people have started treating it as a investment.

Many people have pointed to poor returns in REITs. Others have pointed to the fantastic returns on BitCoin.

So, we have 2 cases which are 180% apart. In one case we have a advisor having a positive opinion and but a poor result. In another case we have a advisor geting a negative opinion but a great result.

So I ask you, what bearing does a asset's return have on the quality of the advisor's advice?
Former brokerage operations & mutual fund accountant. I hate risk, which is why I study and embrace it.
bltn
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Re: Seeking advice on an investment that cannot be liquidated.

Post by bltn »

bertilak wrote: Sat Apr 17, 2021 8:55 am
bltn wrote: Sat Apr 17, 2021 8:12 am The longer you re in it, the more you ll lose.
My experience was quite the opposite. I was happy to take the contracted 7% for several years, until they bought me out (at cost).

If they didn't by me out they were contracted to start to paying me 11%.

This is not to say all non-traded (aka un-priced) REITS or other preferred shares have equally attractive contracts.
That was indeed an attractive contract. I never saw one that good. But my interest in individual REITS was short lived and limited.
ncbill
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Re: Seeking advice on an investment that cannot be liquidated.

Post by ncbill »

alex_686 wrote: Mon Apr 19, 2021 1:20 pm
ncbill wrote: Mon Apr 19, 2021 11:49 am The reason non-traded REITs get sold is because of the high commissions paid to the broker.

...

I will absolutely be filing a FINRA claim against my broker...though since they've abandoned their broker's license who knows what will happen.
So, I would ask the inverse question.

What would your action be If your advisor had suggested that you buy BitCoin and you had declined?

Private REITs are a legitimate investment, it serves a purpose, and is in valid for some portfolios. I used to do independent analysis work on these products. Mind you, I am not calling them great products. In my opinion, they are second rate. But let us differ facts from opinions. The fact is it is a legal investment.

On the other side, in my very strong opinion, BitCoin lays somewhere between a purely speculative investment to a irrational manic asset bubble. I know that it is technically defined as a investment, but that is mainly because enough people have started treating it as a investment.

Many people have pointed to poor returns in REITs. Others have pointed to the fantastic returns on BitCoin.

So, we have 2 cases which are 180% apart. In one case we have a advisor having a positive opinion and but a poor result. In another case we have a advisor geting a negative opinion but a great result.

So I ask you, what bearing does a asset's return have on the quality of the advisor's advice?
My broker specifically claimed the non-traded nature goosed the returns by several hundred basis points over publicly traded REITs holding comparable assets.

That turned out to be true only for a short period of time after I purchased them.

Again, it's clear to me these type of REITs "front-load" returns so you're not going to immediately complain...then down the road they slash the dividends...one went from 8% to 4% to 2% in just a few years.

The above behavior by the broker absolutely justifies a FINRA complaint.
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nedsaid
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Re: Seeking advice on an investment that cannot be liquidated.

Post by nedsaid »

It would be fair to say that Larry Swedroe has weighed in on non-Traded REITs and says investors should pass. As I recall, he said that returns on public REITs exceeded returns from non-traded REITs. Another well known poster here, the Whitecoat Investor, has said positive things about private Real Estate but unclear if he is talking about non-traded REITs. The majority opinion here is that investors should pass. My own preference is for liquid investments and I have never invested in non-traded REITs, in Private Equity, or in Interval funds. What I will say is that investors should think long and hard before invested in semi-liquid or illiquid investments. Again, I am not a never say never person but I have no plans to make such investments.
A fool and his money are good for business.
Dave55
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Re: Seeking advice on an investment that cannot be liquidated.

Post by Dave55 »

Uncle Freddie wrote: Fri Feb 12, 2021 3:33 am BogleHeads,

Could I have your advice, please, on an investment that I cannot liquidate; I cannot sell it because the company will not allow me to. This post is long, but I have made the synopsis as clear and quick of a read as possible.


Part 1

In 2014, my former financial advisor misrepresented an investment to me, which I proceeded to buy for $30,000.

The investment is an "alternative investment" in the form of a REIT. My understanding now is that it is specifically a "Publicly Registered, Non-Traded, Real Estate Investment Trust."

In 2014, I did not understand what it was. Today, I know to never, ever invest in something I do not understand. I was still new to investing in 2014; my mistake was listening to my former financial advisor and believing it to be a good investment, based on his recommendation.


Investment specifics:

Name: Healthcare Trust, Inc., aka HTI
http://www.computershare.com/HTI
http://healthcaretrustinc.com/

Current price: $15.75 per share
Current value: $23,135. My original investment in 2014 was $30,000.

FWIW, it has changed names several times since 2014:

AR Global (http://http://www.ar-global.com)
American Realty Capital (or AR Capital) (http://www.americanrealtycap.com)
American Realty Capital Healthcare Trust II, Inc. (http://www.thhealthcarereit2.com)




Part 2

Starting in 2016, two years into owning the investment, I began receiving letters from another company called MacKenzie Realty Capital, Inc. (http://www.mackenzierealtycapital.com)

From 2016 to 2018, I received 5 of these letters.

In each letter, MacKenzie offered to buy the investment from me. At my loss, of course. The letter starts off: "Good News! You can finally get your cash out of Healthcare Trust, Inc. and regain control of your money." and goes on from there.

My former advisor told me to ignore the MacKenzie offer letters.

HTI sent letters telling me to ignore the MacKenzie offer letters.




Part 3

The sordid story boils down to this: what are my options?



Option 1: should I at the very least file a FINRA complaint against my former advisor?

Why or why not?

For grins, I did a FINRA search (https://brokercheck.finra.org) on him and there is one complaint from 2010:

Disclosure 1 of 1
Reporting Source: Broker
Employing firm when activities occurred which led to the complaint: [redacted for BogleHeads post; PM me for the name]
Allegations: CUSTOMER ALLEGES PRODUCT WAS UNSUITABLE FOR HER
Product Type: REAL ESTATE INVESTMENT TRUST
Alleged Damages: $30,000.00
Is this an oral complaint? No
Is this a written complaint? Yes
Is this an arbitration/CFTC reparation or civil litigation? No
Date Complaint Received: 08/11/2010
Complaint Pending? No
Status: Closed/No Action
Status Date: 08/24/2010
Settlement Amount: $0.00
Individual Contribution Amount:


FWIW: 2010 is before I began working with the advisor.
FWIW: the 2010 complaint was apparently closed with no action and no money returned.
FWIW: the 2010 complaint pertains to the exact same type of investment as mine, and the exact same amount as mine. Coincidence?

If I were to file a FINRA complaint, I may not get any of my money back, but 2 public complaints might keep future customers away from him and his grifting ways.




Option 2: should I do nothing? Just wait it out, and see what happens to my investment?

It is a gut punch every time I remember that it is unknowable if or when I can liquidate this investment. I may have been an idiot for buying the investment, but at least now I understand how much better this money could do in the stock market than sitting in the illiquid REIT. I think about what $30,000 could have done in VTSAX from 2014 to 2021...

HTI may offer to buy the shares back in the future, at my loss, of course. But who knows if or when.




Option 3: should I contact MacKenzie and sell the investment to them, at my loss?

Again, this money could do better in the stock market than sitting in the illiquid REIT. I have yet to research their current offering price and how much more I would end up losing if I go this route. The MacKenzie offer stands until 1/31/2025.

And by the way: if this illiquid REIT investment is as bad as it seems, then why are companies like MacKenzie out there trying to buy it all up? What am I missing?




Option 4, should I file a lawsuit against my former financial advisor?

Am I correct that advisors have an insurance called Errors and Omissions insurance to cover misrepresentations like this?

To be clear: my former financial advisor flat out misrepresented this investment to me. This is just one of several UN-fiduciary things he has done, but so far, I have been able to get out of the other bad investments by forklifting my money to Vanguard.




Option 5, should I file a lawsuit against HTI?

A Google search turns up all kinds of actions being taken against this company, with waiting attorneys just a phone call away:

https://www.google.com/search?q=Healthc ... nc+lawsuit

https://www.whitesecuritieslaw.com/2020 ... set-value/

https://www.classlawgroup.com/securitie ... t-lawsuit/

https://www.investorlawyers.net/blog/he ... demptions/




Thanks BogleHeads for reading this far; I look forward to your insightful comments.

Best regards,
Fred
Fred, I have been in way too many private REIT's and I understand your frustration. I would avoid any litigation, as only the lawyers win. You really have 3 choices: 1. Keep the deal and see how it turns out either through a public offering, a sale to another REIT either public or private or the sale of the assets and liquidation of the REIT with investors being paid out. 2. Sell to MacKenzie or Google "How to sell a Private REIT". 3. find an advisor who sells these private REIT deals and they could guide you how to sell it on the secondary market. (If that market still exists).

Dave
"Reality always wins, your only job is to get in touch with it." Wilford Bion
alex_686
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Re: Seeking advice on an investment that cannot be liquidated.

Post by alex_686 »

nedsaid wrote: Tue Apr 27, 2021 1:11 pm It would be fair to say that Larry Swedroe has weighed in on non-Traded REITs and says investors should pass. As I recall, he said that returns on public REITs exceeded returns from non-traded REITs. Another well known poster here, the Whitecoat Investor, has said positive things about private Real Estate but unclear if he is talking about non-traded REITs. The majority opinion here is that investors should pass. My own preference is for liquid investments and I have never invested in non-traded REITs, in Private Equity, or in Interval funds. What I will say is that investors should think long and hard before invested in semi-liquid or illiquid investments. Again, I am not a never say never person but I have no plans to make such investments.
So let me push back modestly.

I would argue that a primary reason to invest in real estate is its unique presentient diversifying factor from the equity and bond market.

Publicly traded REITs are a hybrid investment - part real estate, part equity. 40 years ago They regressed more on direct holdings of real estate, less on the equity market. However public REITs have been shifting and are acting more and more like equites and less and less like direct real estate holdings.

Private REITs still act more like direct holdings of real estate.

Now, this is only a modest push back. There are a fair number of issues with private REITs.
Former brokerage operations & mutual fund accountant. I hate risk, which is why I study and embrace it.
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